Tag: monetary tightening

  • Monthly inflation expected to ease in the coming months

    Monthly inflation expected to ease in the coming months

    In January, a discerning shift towards disinflation is anticipated, as headline inflation is poised to soften to 27.2 per cent year-over-year (YoY), attributed to a favourable base effect.

    This decline from the previous month’s 29.7 per cent is primarily influenced by a higher base in the preceding year, while monthly pressures on consumer prices are expected to persist.

    Despite the overall yearly decrease, monthly inflation is projected to rise by 0.93 per cent month-over-month (MoM), contrasting with the 12-month average of 2.2 per cent MoM. 

    Consequently, the average yearly inflation for the first seven months of fiscal year 2024 is estimated at 28.57 per cent YoY, up from 25.40 per cent YoY in the same period last fiscal year.

    The surge in monthly inflation is predominantly fueled by a rise in the food and housing index. Food inflation is expected to increase by 1.76 per cent MoM, driven by inflated prices of essential commodities such as onions, chicken, tomatoes, eggs, and pulses. 

    Meanwhile, the housing index is projected to experience a 1.54 per cent MoM increase, primarily due to quarterly rent adjustments. In contrast, the transport index is anticipated to decrease by 2.69 per cent MoM, attributed to relief in fuel prices.

    Looking ahead, a 0.5 per cent MoM inflation rate in February could result in an annual headline inflation of around 22 per cent, with a gradual decline below 16 per cent by June 2024.

    Even a 1 per cent MoM inflation rate, significantly lower than the 12-month average, is expected to maintain real interest rates from turning positive until March 2024, as illustrated in the accompanying chart depicting various monthly inflation scenarios.

    Starting in January, the disinflationary trend is expected to accelerate due to the favourable base effect, the lagged impact of monetary tightening, and other administrative measures.

    However, potential risks include unforeseen climate events, volatility in global commodity prices—especially oil—and external account pressures.

    Rising global oil prices amid geopolitical tensions pose a threat to the inflation outlook, and an additional gas price adjustment, as suggested by the International Monetary Fund (IMF), may further intensify pressure on consumer prices.

  • December inflation may surpass 30% due to gas price hike

    December inflation may surpass 30% due to gas price hike

    In December, inflation is expected to surpass the 30 per cent threshold, driven by the recent increase in gas prices and the persisting adverse base effect, which continues to impact the consumer price index (CPI).

    The headline inflation for December is projected to settle at approximately 30.11 per cent year-on-year (YoY) and 1.18 per cent month-on-month (MoM), in contrast to the previous month’s figures of 29.2 per cent YoY and 2.7 per cent MoM.

    This monthly inflation rate is significantly lower than the 12-month average of 2.17 per cent MoM.

    Consequently, the average yearly inflation for the first six months of FY24 is estimated to be 28.87 per cent YoY, compared to 25.05 per cent YoY in the same period of FY23.

    The surge in inflation can be attributed to the adverse base effect and the notable increase in gas prices, which were not fully realised in the previous month.

    Conversely, food inflation is expected to exhibit a marginal decrease of 0.29 per cent MoM, driven primarily by the decline in prices of tomatoes, potatoes, chicken, and oil.

    Additionally, the transport index is forecast to undergo a 4 per cent MoM decrease, mainly due to the relief in petrol and high-speed diesel (HSD) prices.

    Post-December, inflation is anticipated to decline at a relatively faster pace, supported by the favorable base effect, the delayed impact of monetary tightening, and other administrative measures.

    The December spike is attributed to the lingering effects of the overdue gas price hike. Notably, unforeseen climate events, volatility in global commodity prices, especially oil, and external account pressures pose significant upside risks to the inflation outlook.

    Global oil prices are on the rise amid challenges in Red Sea shipping, potentially threatening the inflation outlook.

    Moreover, the successful completion of the International Monetary Fund (IMF) review, coupled with additional loan programmes, remains crucial.

    The outstanding amount of $1.8 billion under the stand-by arrangement (SBA) is yet to be released.

    The accompanying chart illustrates the yearly inflation trajectory based on different MoM CPI scenarios. At 0.5 per cent and 1 per cent MoM CPI, yearly inflation is projected to fall below the 22 per cent policy rate by February–March 2024.

    By the end of FY24, with 0.5 per cent and 1 per cent MoM CPI, it is expected to decrease to 15.29 per cent and 19.37 per cent, respectively, a significant change from the previous month’s forecasts of 12.9 per cent and 17.5 per cent.

    Considering the last 12-month average of 2.17 per cent MoM, the real interest rate is anticipated to remain in negative territory by the end of FY24.

  • Pakistan Stock Exchange may surpass 60,000 level soon

    Pakistan Stock Exchange may surpass 60,000 level soon

    The benchmark index of the Pakistan Stock Exchange (PSX) marked a record-breaking bullish run on Monday, closing just shy of the 60,000 mark without surpassing it. 

    There is an anticipation that, given the current pace, the stock market might breach the 60,000 level soon. 

    According to the PSX website, the KSE-100 index showed marginal gains until noon. However, at 1:11 pm, it experienced a sudden surge that persisted until closing time, reaching 59,811.34, up by 724.99 points (1.23%) from the previous day’s 59,086.35.

    In the preceding Friday session, the KSE-100 index had set a new record at 59,100 points, attributed to strong corporate profits, reduced economic volatility, the successful conclusion of an IMF staff-level deal, expectations of a stable post-poll government, and optimism about an early reversal of monetary tightening. This led to a rapid increase in share prices over the last three months.

    Regarding the current rally, Raza Jafri, head of equity at Intermarket Securities, noted, “The banking sector is driving the rally, aligning with the improving economic outlook.” He emphasised that banks, offering a combination of high dividend yields and attractive valuations, have consistently been favoured by foreign investors.

    Shahbaz Ashraf, chief investment officer at FRIM Ventures, a Karachi-based investment company, attributed the rally to “cheap valuations and an influx of liquidity.”